Summary of Findings

Summary of Findings


Money Laundering Working Group

The U. S. Sentencing Commission comprehensively examined the operation of the money laundering guidelines in 1992 and 1995 in response to concerns that the guidelines failed to reflect appropriately offense seriousness. This Report Summary, second in a series highlighting Commission research activities, summarizes findings from the Money Laundering Working Group Reports relating to the operation of guidelines 2S1.1 and 2S1.2. The full reports are available on loan from the Commission or through the Depository Library System of the U.S. Government Printing Office, Superintendent of Documents. The 1995 report is available on the Sentencing Commission's electronic bulletin board, USSC OnLine, by calling (202) 273-4709.

Introduction

As part of the Anti-Drug Abuse Act of 1986, Congress created the federal offense of money laundering that prohibits financial transactions using proceeds from unlawful activity. See 18 U.S.C. 1956, 1957. In response, the U.S. Sentencing Commission developed guidelines 2S1.1 and 2S1.2 and included them in the initial set of sentencing guidelines that took effect November 1, 1987.

The Commission subsequently received public comment criticizing the application of the money laundering guidelines. Some commentators asserted that guideline sentences in money laundering cases were often disproportionately high relative to the seriousness of the offense and, because of inconsistent charging practices by the government, led to unwarranted sentencing disparity. In 1992, the Commission convened the Money Laundering Working Group to assess these concerns.The working group included members of the Commission's legal, policy analysis, and training staffs.

The working group analyzed relevant statutes, case law, and a sample of presentence reports from cases sentenced during fiscal year 1991 under the money laundering guidelines and issued a detailed report to the Commission in October 1992. The group updated that effort in February 1995 with case law and other relevant information, including case analyses, that had become available since the initial report.

Money Laundering Defined

Generally, "money laundering" is a phrase used to describe a broad category of offenses involving financial transactions with funds or monetary instruments gained through criminal activity. Title 18 of the U.S. Code establishes four different types of money laundering violations:

Subsection (a)(1) of 18 U.S.C. 1956 makes it illegal to conduct or attempt to conduct a financial transaction with proceeds known to be from specified unlawful activity with:

(1) intent to promote the carrying on of specified unlawful activity;

(2) intent to evade taxes; or

(3) knowledge that the transaction is designed to conceal or disguise the nature of the proceeds or to avoid a state or federal transaction reporting requirement.

Subsection (a)(2) of 18 U.S.C. 1956 makes it illegal to transport or attempt to transport monetary instruments or funds to or from the United States with:

(1) intent to promote the carrying on of specified unlawful activity; or

(2) knowledge that the monetary instruments or funds represent the proceeds of unlawful activity and that such transportation was designed in whole or in part to conceal or disguise the nature of the proceeds or to avoid a state or federal transaction reporting requirement.

Subsection (a)(3) of 18 U.S.C. 1956 makes it illegal to conduct or attempt to conduct a financial transaction involving property a law enforcement officer represents to be the proceeds of specified unlawful activity or property used to conduct or facilitate specified unlawful activity with the intent:

(1) to promote the carrying on of specified unlawful activity;

(2) to conceal or disguise the nature of property believed to be the proceeds of specified unlawful activity; or

(3) to avoid a state or federal transaction reporting requirement.

Section 1957 of title 18, U.S. Code, makes it illegal knowingly to engage or attempt to engage in a monetary transaction involving property valued at more than $10,000 if it is derived from specified unlawful activity.

When it initially drafted money laundering guidelines in 1987, the Commission did not have the benefit of settled judicial interpretations of key terms because the applicable statutes only recently had been enacted. The Commission established significant penalties,For example, the Commission established a base offense level of 23 (46-57 months) if the offense involved the promotion of specified unlawful activity. U.S.S.G. 2S1.1 (a)(1). expecting that 2S1.1 would be applied to cases in which financial transactions "encouraged or facilitated the commission of further crimes" and to offenses that were "intended to . . . conceal the nature of the proceeds or avoid a transaction reporting requirement." U.S.S.G. 2S1.1, comment. (backg'd).

However, over the years the relevant statutes have been applied to a broader range of conduct than the Commission expected. For example, the statutory phrase "to promote the carrying on of specified unlawful activity" has not been limited to offenses in which the defendant "encouraged" or "facilitated" the commission of further crimes. Indeed, under United States v. Montoya, 945 F.2d 1068 (9th Cir. 1991). once the defendant has committed the underlying offense, showing that the defendant desired to "make use of the funds," is sufficient to establish an intent to "promote.. . specified unlawful activity."

Because of the broad interpretation given the relevant statutory language, the Commission received significant public comment contending that certain offenses technically qualified as "money laundering" even though the conduct was frequently incidental to, or a part of, an underlying crime (e.g., paying a supplier for drugs or depositing the proceeds of a white collar offense). Practitioners asserted that although such "money laundering" conduct reflected little or no additional harm to society, a money laundering charge could result in a significantly higher guideline sentence than if the underlying offense alone is charged. This raised the question whether, in many instances, the money laundering guidelines appropriately reflect offense seriousness.

Empirical Study of Defendants Convicted under 18 U.S.C. 1956, 1957

To gain an understanding of sentencing practices under its money laundering guidelines, the working group examined monitoring data on 2S1.1 and 2S1.2 cases and court documents in Commission files. In 1992, the group examined a sample of guideline defendants from the Commission's monitoring FY1991 database convicted of money laundering offenses, selecting cases in which 2S1.1 or 2S1.2 was the primary guideline.The primary guideline is that which results in the highest offense level. From the 200 cases identified, the group selected all multiple count cases (n = 45)Multiple count cases are those with at least one count sentenced under 2S1.1 or 2S1.2 and at least one count sentenced under a different Chapter Two offense guideline. and a 25 percent random sample of the remaining 155 single-count cases, yielding a total of 79 cases.

The working group found that 70 of the 79 cases (88.6%) involved criminally derived funds. Of the nine other cases, eight involved government "sting" operations (i.e., the defendant believed the funds were criminally derived) and one lacked sufficient information to determine the source of the funds. The defendant participated in the underlying criminal conduct in 93.6 percent of these 70 cases. To test the assertion that the money laundering conduct was incidental to, or part of, the underlying crime, the working group examined relevant case files to determine both the underlying offense that generated the proceeds and the nature of the money laundering conduct. Figure 1 illustrates the nature of the underlying offense conduct. Figure 2 illustrates the nature of the conduct that violated the money laundering statutes.

For each case in the sample, the working group compared the offense level of the money laundering count to the offense level applicable to the underlying criminal conduct. In cases sentenced under 2S1.1, the offense level for the money laundering count was generally higher than the offense level for the underlying criminal conduct. This difference varied markedly, however, between drug and non-drug cases. The money laundering offense level was higher than the underlying conduct's offense level in 52.5 percent of the drug cases and in 96.0 percent of the non-drug cases.

In many cases, the gap between the offense level for the money laundering conduct and the offense level for the underlying conduct was significant. For example, in one case the money laundering count increased the offense level by 21 levels, in two cases by 16 levels, in one case by 15 levels, in one case by14 levels, in four cases by 11 levels, in five cases by nine levels, in one case by eight levels, in two cases by six levels, and in five cases by five levels.

Conversely, in some cases dropping or failing to charge an underlying drug offense substantially reduced the resulting offense level. In two cases the offense levels for the money laundering counts were nine levels lower than the offense level if the drug offense had been charged, in one case eight levels lower, in one case four levels lower, and in one case three levels lower.

When the working group updated its analysis in 1995, it examined FY1994 cases involving a money laundering count and a fraud countFraud was the "white collar" offense most often charged in connection with money laundering. to determine whether this finding still held true. The inclusion of a money laundering count raised the offense level 94.5 percent of the time for fraud. In approximately 75 percent of the cases, the increase was at least four levels.

In addition to examining the effect of money laundering charges on the guideline sentence, the working group analyzed departure rates to determine how many money laundering defendants actually were sentenced within the applicable guideline range. The rate of departure, upward and downward, is one indicator of whether the sentencing courts find the guideline sentence appropriate. The working group found that in FY1991 only 66.0 percent of money laundering defendants were sentenced within the guideline range, compared to the 79.5 percent of all federal defendants who received sentences within their applicable range. Although 1.0 percent of money laundering defendants received upward departures (compared to 1.6% of all defendants), 11.5 percent received downward departures, and an additional 21.5 percent received downward departures for substantial assistance. In sum, 33.0 percent of all money laundering defendants received downward departures. Across all cases, the total downward departure rate that year was 18.5 percent (including 12.6% for substantial assistance and 5.9% for other reasons). See Figure 3.

Overall, the working group found that its analysis of the data verified practitioner criticisms of the operation of the money laundering guidelines. The following indicators suggest that the existing penalty structure does not accurately reflect offense seriousness:

case law interpreting key statutory terms more broadly than the Commission expected;

evidence that money laundering offenses often do not involve "traditional" money laundering conduct and even less frequently involve sophisticated money laundering conduct;

common practice of charging money laundering when defendants participated in the underlying criminal conduct;

substantial disparity, in many cases, between the applicable offense level for the underlying criminal conduct and the money laundering conduct;

the high downward departure rate in money laundering cases; and

the apparent practice, in some cases, of charg-ing money laundering rather than drug offenses to reach a lower guideline sentence.

The evidence reviewed by the working group suggests a need to bring money laundering base offense levels more in line with offense levels for the underlying criminal conduct, perhaps augmenting them with specific offense characteristics that more clearly serve as proxies for offense seriousness (e.g., evidence of sophistication).

Recommendations

The working group concluded that the apparent anomalies in the operation of the money laundering guideline were primarily attributable to reliance on inflexible base offense levels -- 20 for cases involving the "traditional" money laundering offense (i.e., to conceal the source of illegal funds), and 23 for offenses committed to "promote" criminal conduct. The group concluded that the inherent rigidity of this approach means that offense levels for the money laundering conduct and for the crime from which the laundered proceeds derived may bear little relationship to each other. Thus, drawing from cases the group reviewed, a gambling offense that produces an offense level of 12 under 2E3.1 will yield an offense level of 23 under 2S1.1 if proceeds from the gambling offense are used in a financial transaction covered by the money laundering statute. On the other hand, a drug dealer using sophisticated means to conceal the source of proceeds from a drug trafficking offense who would receive an offense level of 34 if sentenced under the drug trafficking guideline (2D1.1), would receive an offense level of only 25 if sentenced exclusively under the money laundering guideline.

To assure that sentencing under 2S1.1 reflects the seriousness of the offense, the working group recommended that the Commission consider amending 2S1.1 to link money laundering base offense levels to the actual or approximate offense level applicable to the offense from which the laundered proceeds derived. The working group further recommended that offense levels in money laundering cases be increased appropriately through specific offense characteristics to account for traditional money laundering conduct (i.e., concealment of the source of proceeds, especially sophisticated concealment) and money laundering conduct aimed at promoting further criminal conduct. The working group recommended, finally, that the Commission consider merging guidelines 2S1.1 and 2S1.2 for simplicity.

Postscript

In late April 1995, the Commission voted to amend the money laundering guidelines by consolidating 2S1.1 and 2S1.2 in an effort to simplify their application and better ensure that the offense levels comported with the relative seriousness of the underlying offense conduct. This amendment, along with other unrelated amendments, was sent to Congress for the statutorily required 180 days of review. Prior to expiration of this review period, Congress passed and the President signed legislation to disallow implementation of the money laundering amendment.


United States Sentencing Commission